The original Code for Leasing Business Premises 2007 historically received criticism for lacking ‘teeth’. From 1st September 2020, the new Code aims to get a bit toothier.
Indeed, the primary purpose of the original 2007 Code was to provide advice to landlords and tenants regarding the terms that should be included on a standard business lease. However, subsequent research undertaken by the University of Reading found that initial awareness and implementation of the 2007 Code was not widespread.
The new and revamped 2020 Code has been published by the RICS as a professional statement, which means it’s implementation is technically mandatory for members. The new Code for Leasing Business Premises 1st Edition 2020 was released in February, but its application will be effective from 1st September 2020. Whilst this statement is not enshrined in law, it is likely that due to it’s mandatory application by RICS members, it will have wide reaching consequences in the industry.
The primary objective of the updated code is to improve the quality and fairness of lease term negotiations. The code also seeks to promote and enforce a set of obligatory contents for inclusion in heads of terms to enable a more efficient legal drafting process across the board. Whilst most surveyors and agents will probably read the Code and think ”obviously..”, it is still important to ensure familiarity with the document.
Outlined below are the mandatory requirements of the revised code, with a brief description of each.
Lease negotiations must be held in a constructive and collaborative manner (were they not before?!)
Code Awareness and Professional Representation
Any party not represented by an RICS member or similar property professional must be made aware of the code and its accompanying guide by the other party.
The unrepresented party must also be recommended to obtain professional advice.
Written Heads of Terms
On a vacant possession letting, the terms of lease agreement must be recorded in written heads of terms. Whilst this is pretty much standard procedure in the industry, the Code aims to enforce a prescribed set of contents.
As well as stating that the Heads are ‘subject to contract’ the Code also sets out mandatory headings for inclusion. A few of these have been set out below (this list is far from exhaustive – for a comprehensive list please refer to the Code itself):
· The extent and identity of the premises. If the lease is registerable, then the landlord is required to arrange the provision of a Land Registry-compliant plan.
· The granting of any and all special rights, such as telecom/data access. This is likely to continue to gain further significance as the necessity for higher internet speeds increase with tenant demand.
· The length of the term, stipulating the application (or exclusion) of the Landlord and Tenant Act 1954.
· The position of the landlord on charging VAT on the rent.
· Clarity on the ability to sublet, charge, share or assign the premises.
Again, whilst most of the contents enforced by the Code are generally used anyway, it is still best to refer to and get comfortable with the full list to ensure compliance.
Heads of Terms Compliance
At the point where an existing lease is renewed or extended, the heads of terms must comply with the above aspects.
Negotiations on letting terms between the landlord and tenant should always strive for balance with respect to each parties’ commercial interests.
Before the initial draft lease is circulated, the landlord will be responsible for making sure that heads of terms that comply with such interests have been documented.
The above has summarised the mandatory aspects of the Code. The remaining provisions of the 2020 Code for Leasing Business Premises demonstrate good practice and are not mandatory. However, it would still be advisable to make yourself familiar with them. These provisions include important information regarding matters that should be covered in negotiations before defining the heads of terms and the lease itself.
For a full list of mandatory requirements and best practices, please refer to the statement itself, which can be found at https://www.rics.org/uk/upholding-professional-standards/sector-standards/real-estate/code-for-leasing-business-premises-1st-edition/, or contact Boldmore for further advice on the matter.